Chris Maher, board member of the Federal Reserve Bank of Philadelphia, argued that inflation creates “stress” in the environment that “will take some time” to get under control.
The CEO of OceanFirst Financial also noted on Tuesday that rising prices for all goods, especially food and energy, “had a significant impact.”
‘There are real concerns in the economy,’ he said, speaking on ‘Mornings with Maria’ four days after inflation was revealed to remain painfully high in May, prices consumption hitting a new four-decade high that has exacerbated financial pressure for millions of people. Americans.
The Labor Department said Friday that the consumer price index, a broad measure of the price of everyday goods, including gas, groceries and rents, rose 8.6% in May compared to a year ago. Prices jumped 1% in the month-long period from April. Those figures were both higher than the headline figure of 8.3% and the monthly gain of 0.7% predicted by economists at Refinitiv.
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This figure marks the fastest rate of inflation since December 1981.
May’s dismal inflation report has some Wall Street economists betting that the Federal Reserve will raise interest rates by 75 basis points this month or next as policymakers try to rein in inflation prices. consumption.
Federal Reserve Chairman Jerome Powell dismissed the possibility of a 75 basis point interest rate hike in early May following a meeting of policymakers in which they voted to raise rates by half a point. Officials signaled that half-point rate hikes are on the table in June and July, although it’s unclear how Friday’s report might affect that.
“Having a soft landing is going to be particularly difficult this time around,” Maher warned on Tuesday. “We’ve had such an unusual set of circumstances between the pandemic and other things that make it very, very tricky.”
“There’s been a lot of money poured into the money supply. There’s been huge inflation; it’s very widespread. We have ongoing disruptions in supply chains, so it’s going to be very difficult to reduce that to a soft landing,” he continued.
Policymakers are trying to cool consumer demand enough to stop prices rising, but if they fail, they risk plunging the country into a recession. This elusive balance between dampening demand without crushing the economy is known as a soft landing — and history shows the Fed often struggles to successfully make the connection between policy tightening and preserving of growth.
Maher said he thinks if there’s a recession in the United States, “it could be very mild” – more like “the recession you saw with the dot-com problem, and nothing like the recession credit you saw in 2008.”
The dotcom bubble resulted in a rapid rise in US stock valuations, primarily due to investments in internet-based companies in the late 1990s.
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The two previous recessions were probably caused by what is called an “asset bubble”. While neither exhibited a sharp rise in price inflation, both exhibited rapid growth and the subsequent bursting of asset bubbles. The 2001 recession was preceded by the bursting of the dot-com bubble and the 2007-2009 recession was preceded by the housing bubble.
Asset bubbles develop when the economy is booming and investors in a particular asset buy large amounts of that asset in the belief that it will sell for a higher price. But if the prices of these assets fall and enough people are heavily exposed to this asset, it could deplete the value of people across the country.
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“I think we can expect a cycle that is perhaps much more benign than what you would have had in previous cases,” Maher said on Tuesday, noting that currently “we are in a different environment” compared to 2008. .
“I don’t think we’re at much risk of entering a typical credit slump, which would be a much more destructive event,” he concluded.
Megan Henney of FOX Business contributed to this report.